In Yegiazaryan v. Smagin, No. 22–381 (June 22, 2023), the U.S. Supreme Court cited Restatement of the Law, Conflict of Laws § 377 and Restatement of the Law Second, Conflict of Laws § 145 in clarifying that an aggrieved party has alleged a “domestic injury” for purposes of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1964(c) “when the circumstances surrounding the injury indicate it arose in the Untied States.”
The case arose when a judgment creditor—who resided in Russia and had obtained a foreign arbitration award and a domestic judgment to enforce the arbitration award against a Russian citizen who had moved to California—filed suit under the Act against, among others, the judgment debtor and a foreign bank, alleging that the debtor, the foreign bank, and others violated substantive provisions of the Act when they engaged in fraudulent schemes to frustrate the creditor’s attempts to collect on the domestic judgment. The U.S. District Court for the Central District of California granted the debtor and the bank’s motion to dismiss, finding that the creditor failed “to adequately plead a domestic injury” as required by § 1964(c), because, by residing in Russia, the creditor experienced the loss in a foreign location. The U.S. Court of Appeals for the Ninth Circuit reversed, rejecting a residency-based test in favor of a context-specific approach.
In an opinion delivered by Associate Justice Sonia Sotomayor, the U.S. Supreme Court affirmed the Ninth Circuit’s decision, holding that the creditor alleged a domestic injury for purposes of § 1964(c), because the circumstances surrounding the creditor’s injury indicated that the injury arose in the United States. Seeking to resolve a circuit split among the U.S. Courts of Appeals, the Court explained that the domestic-injury inquiry was “context specific” and “turn[ed] largely on the particular facts alleged in a complaint.” The Court rejected the debtor and the bank’s argument for a bright-line rule derived from Restatement of the Law, Conflict of Laws § 377, in which the location of the aggrieved party’s injury was determined by the location of the party’s residence at the time of the purported fraud, reasoning, inter alia, that “[t]hey [did] not clearly explain why choice-of-law principles [were] germane here.” The Court observed that it also was not clear that § 377 was the controlling choice-of-law principle at the time the Act was enacted, because “numerous jurisdictions had by then moved away from the First Restatement’s methodology” and towards the “most significant relationship” test set forth in Restatement of the Law Second, Conflict of Laws § 145.
The Court concluded that the “core problem” with the bright-line approach was that it was “unmoored from the presumption against extraterritoriality,” and reasoned that, in this case, the bright-line rule “generat[ed] results so counter to comity and so far afield from any reasonable interpretation” of § 1964(c), because the “legal fictions regarding the situs of economic injuries and intangible property” did not address “concerns for comity and discerning congressional meaning.” The Court pointed out that application of the bright-line rule ran “its own risks of generating international discord” by imposing double standards on business interests of businesses located in the United States but owned by parties residing in foreign states.
Read the full opinion here.